January 9, 2005 Sunday
The Journal News (Westerchester County, NY)
Jay Loomis

Low savings rate hurting economy, retirement security

Joy Hopkins wants to build a secure financial future, but the challenges are daunting.

The math of everyday expenses and unexpected emergencies is often unfavorable for the 37-year-old Jamaican immigrant as she raises six children and works a low-wage job. The bills that she and her husband face include $300 a week for groceries, $4,000 a year for clothes and $3,000 a month for a home mortgage.

There are medical bills for the unexpected mishaps - a broken finger for one child and a toothache for another. There are bills for her children's school supplies, field trips, telephone service and utilities. Hopkins' one-hour  round-trip commute from her Brewster home to work costs about 17 percent more than a year ago with gasoline rising to more than $2 a gallon in the region.

She and her husband, caretakers at a group home for the mentally handicapped, are having a hard time saving, given the constant barrage of expenses. For now, her long-term dream of opening her own cosmetology business is on hold because of the savings shortage.

"I can't put any savings away, much less enough," Hopkins said. "It really concerns me. How can you think about retiring?"

The savings gap worries more than just Hopkins.

It is a national epidemic that is raising alarm bells about the impact on living standards, the U.S .economy and retirement security for millions of Americans.

Statistics tell the story:

*The savings rate for American households has fallen to 2.5 percent from a 7 percent average 30 years ago.

*Consumer debt has zoomed over $2 trillion for the first time, according to the Federal Reserve.

*The average American holds 2.7 bank credit cards, 3.8 retail credit cards and 1.1 debit cards for a total of 7.6 cards, according to CardWeb.com.

*Sixty-one percent of Americans between 24 and 64 have no retirement savings account, according to the National Center for Policy Analysis.

*About 6 percent of households with annual incomes of less than $100,000 have  retirement savings, according to AARP. Richer households are better off. About 85 percent of the homes with incomes of at least $100,000 have retirement nest eggs.

"Never before in history have so many individuals had the opportunity, and difficult challenge, to support themselves financially for decades after retirement," wrote Jeffrey R. Brown, an assistant finance professor at the University of Illinois at Champaign-Urbana, in a study released last year.

The savings crisis is a major item on the agenda of the Consumer Federation of America. The group's America Saves program hopes to boost the savings rate for low to moderate-income households. Each quarter, the federation produces "American Saver," a newsletter full of saving tips and profiles of savers.

A recent edition of the newsletter, for example, included advice on "Why build an emergency fund?" and "How to find money to save."

"Unless most Americans start saving a higher percentage of their income, they will be less prepared to meet major emergencies and afford retirement," said Stephen Brobeck, executive director of the federation. "A great many people may have to work their entire life."

Economists partly blame the poor savings rate on household wages not keeping pace with inflation. As costs rise for health insurance, gasoline, housing and college tuitions, many people struggle to keep up.

A consumer-driven culture and the easy availability of credit cards can also encourage the undisciplined to splurge on the latest electronic gizmos and other expensive goods with little regard for the financial consequences.

"It is conspicuous consumption - keeping up with the Joneses," said Ann Davis, director of Marist College's Bureau of Economic Research. "Advertising persuades people that their value is the name brands that they buy.. ... People want the latest video games, the latest fashions, the most expensive vacations."

Unless the savings rate picks up in coming years, when concerns are likely to mount about the long-term solvency of Social Security, Davis said, "We may end up with older people who are indigent, who are out on the street and can't cover their health care."

Recent interviews with local residents found varying degrees of savings success.

Karen Robilotta, 46, said she's found that saving has never been easy. It was even harder when revenues dropped more than 30 percent at Training Dynamics, a corporate training business that she co-owns in White Plains, after the terrorist attacks on Sept. 11, 2001.

With money tighter in the post-Sept. 11 economy, Robilotta's personal savings rate dropped to 5 percent of her income.

"When you have your own business, your income can vary a lot with the economy," said Robilotta, a resident of Kent Lakes.

But with the economy better now - and her business enjoying a record 2004 -  Robilotta is now saving about 10 percent of her income. Her long-term goal is to reach 25 percent. Yet there are obstacles. Those include college expenses for one son enrolled at Westchester Community College and similar expenses expected in four years for a second child, now 14. There also are the constant temptations to spend, she said.

"Saving is not something that I am good at," Robilotta said. "Retirement is still far off. A lot of work has to be done."

Robert Girla, 39, teaches modern history at Westchester Community College. He and his wife, Gosha, show that a high savings rate - about 25 percent - is possible with the proper mindset. Partly by driving the same Toyota for five years, paying off credit card balances each month and looking for bargains at the grocery store, Girla saves well above the national norms.

"When I came to this country, I didn't have a lot of money," said the Bronx resident, who immigrated from Poland 15 years ago. "Saving became a habit. There was no choice. I guess it still is a habit."

He also is careful about spending too much on the latest electronic gadgets.  "You have to be immune to the advertising," Girla said.

Lisa Libertone, 17, works 20 hours a week at an ice cream parlor in Yonkers. The senior at Good Counsel Academy in White Plains tries to save about $50 from each $280 paycheck for future college expenses that could amount to about $30,000 a year.

Libertone, who has applied to Marymount College in Tarrytown, said that she realizes the importance of saving from the example of her parents, who will help  pay for her college.

"I look at my parents, at all the bills that come in, and how they manage," she said. "I don't see how they do it. It is amazing."

Ishmael Ribar, 20, named after the character in Herman Melville's "Moby Dick," wants to become a writer. The major in creative writing at Purchase College also said he has no illusions that Social Security will provide enough during his distant retirement.

"I'm not planning on Social Security," Ribar said. "I saw what my grandmother got in a monthly Social Security check. It wasn't much and she worked her whole life."

These days Ribar saves about $40 a week out of a $120 paycheck that he earns as a part-time assistant butcher at the Super Stop & Shop in White Plains. His expenses include rent on a one-bedroom apartment, food and cigarettes.

"I started investing when I was 15," he said.